Smith & Nephew Q3 2024 Trading Update

Smith & Nephew (NYSE:SNN), a global medical technology company, reported a 4% underlying revenue growth in its third-quarter trading update, achieving $1.4 billion in revenue. CEO Deepak Nath expressed optimism about the company's progress, particularly in the U.S. market, while acknowledging challenges in China that have led to a downward revision in full-year growth expectations.

Key Takeaways

• Smith & Nephew reported a 4% underlying revenue growth, totaling $1.4 billion.
• U.S. recon growth improved due to operational enhancements.
• Performance in China weakened, impacting overall growth.
• Full-year growth forecast adjusted to approximately 4.5%, down from 5% to 6%.
• Trading margin expansion of up to 50 basis points expected, with a long-term target of 19% to 20% by 2025.
• Innovative product launches contributed to nearly half of the total revenue growth in 2023.
• Cautious outlook for the Chinese market, with recovery anticipated in 2025.

Company Outlook

• Full-year growth projection lowered to around 4.5% due to weaker performance in China.
• Margin outlook for the year adjusted to up to 50 basis points increase.
• Revenue growth for 2024 to 2025 expected to be around 5%, aiming for a 20% gross margin by 2025.

Bearish Highlights

• China transitioned from a neutral contributor to nearly a 2 percentage point headwind.
• Market share loss concerns in China due to local competition and lower-than-expected volume growth.
• Input cost inflation has slightly increased, impacting margin expectations.

Bullish Highlights

• Growth outside China robust at 5.9% in Q3 and 5.1% year-to-date.
• Operational improvements in the U.S. expected to boost market participation.
• Trauma franchise showing double-digit growth, driven by the EVOS system.

Misses

• Downgraded full-year growth forecast and margin expectations for 2024 and 2025, primarily due to the Chinese market.
• Uneven recovery in supply for knee products, particularly the OXINIUM line.

Q&A Highlights

• Management confident in the 12-Point Plan, expecting significant margin expansion by 2025.
• Ongoing destocking in China expected to continue into Q4 and the first half of 2025.
• U.S. knee business projected to return to growth in the second half of 2025.

Smith & Nephew's CEO Deepak Nath remains committed to the company's strategic initiatives, including the 12-Point Plan, despite headwinds in China. The company focuses on operational improvements and productivity gains to sustain growth and enhance margins as it navigates current challenges.

InvestingPro Insights

Smith & Nephew's financial performance is strong, despite challenges in China. The company has a market capitalization of $10.9 billion and a 2.16% dividend yield after maintaining dividend payments for 48 consecutive years. Smith & Nephew’s liquid assets exceed short-term obligations, providing stability against market volatility. With the stock trading near its 52-week low, this might present investment opportunities for long-term believers in the company's strategy.

For more insights, InvestingPro offers additional data on Smith & Nephew’s performance.